HSBC Holdings will tap shareholders for US$17.7 billion in new funds and cut 6,100 jobs after its investment in the US subprime lending market resulted in a 70 per cent drop in 2008 net profits.
Europe's biggest bank by market value said yesterday it would raise money to shore up its balance sheet through a discounted rights offering that will rank as the third largest by any company on record.
For the first time in at least 15 years the bank will slash its dividend payment by 29 per cent, affecting more than 210,000 shareholders of whom management estimates some 20 to 30 per cent are in Hong Kong.
The London-based lender reported net income of US$5.73 billion for 2008, down 70.06 per cent from US$19.13 billion a year earlier. For the six months to December, HSBC suffered a net loss of US$1.99 billion, its first loss since at least 1995.
News of the rights offering and the dismal financial results pushed HSBC's shares down 18.78 per cent to 399 pence at the close of trading on the London Stock Exchange.
Investor concern about HSBC and American International Group, which posted the biggest quarterly loss in US corporate history, dragged down London, European and US markets.
In London, the FTSE 100 slid 5.3 per cent to its lowest closing level in nearly six years at 3,625.83, while in New York the Dow Jones Industrial Average slipped below the 7,000 level, falling 3.12 per cent to 6,842.31 in early afternoon.
HSBC's drastic moves to raise new funds and conserve cash come as the bank suffered a one-time US$10.56 billion write-down on its personal finance business in the US, a market it entered six years ago in a US$15 billion deal.
'With the benefit of hindsight, the group wishes it hadn't made this investment,' group chief executive Michael Geoghegan said yesterday.
HSBC's 2003 acquisition of US subprime mortgage lender Household Financial, since renamed HSBC Finance Corp, has cost the bank tens of billions in write-downs and bad-debt provisions since the onset of the global financial crisis.
Management said it would close most of its 800 retail consumer credit branches in the US and lay off about 6,100 employees.
It said it would cut its losses in the US, cease all new household, car and personal finance lending and slowly wind up its portfolio of US loans by waiting until they were repaid or trying to sell them on to other investors.
Net operating income fell 7.69 per cent to US$27.33 billion in the second half from a year ago, after provisions against bad or doubtful loans soared 36.55 per cent to US$14.88 billion in the six-month period.
HSBC's massive rights issue will follow similar moves by rival lenders including RBS and Fortis. The bank is offering existing shareholders five discounted new shares for every 12 shares currently held.
'HSBC is not the first one doing a rights issue, so it's not [too] surprising,' said Mona Chung, a fund manager at Daiwa Asset Management. 'The most important thing is whether the bank will be changing its dividend policy [for 2009] going forward.'
HSBC announced yesterday a 10 US cents per share dividend payment for the fourth quarter of last year, cutting the full-year payout for the first time in more than a decade to 64 US cents per share from 90 US cents per share in 2007.
Management said it would pay a dividend of 8 US cents per share for each of the first three quarters of this year and set the fourth-quarter payout based on performance.
For the rights issue, a holder of one Hong Kong board lot of 400 shares can subscribe to 167 new rights shares at HK$28 apiece, a discount of approximately 50.83 per cent from Friday's closing price of HK$56.95 per share. The total cost for the rights subscription works out at HK$4,676 per board lot of HSBC shares.
HSBC's stock will resume trading on the Hong Kong stock exchange today.
For the first time in at least 15 years HSBC will slash its dividend payment, by 29 per cent
The number of shareholders that will be affected by this decision is more than: 210,000